The California State Auditor put six cities on a watch list this week because of a “high-risk of major challenges.” Three of them are shaky and will require a watchful eye going forward; the other three require immediate attention and the auditor will ask the Legislature in early 2016 to authorize thorough reviews.

Chico, Monrovia and Ridgecrest got the light touch, but Hemet, Maywood and Richmond will be scrutinized. The auditor made the determinations after reviewing 450 cities for the “potential of waste, fraud, abuse, or mismanagement, or . . . major challenges associated with their economy, efficiency, or effectiveness.”

The review, which was mandated by a new state law that took effect July 1, used public information, like city financial reports and earlier audits or analyses, to whittle the 450 cities down to a more manageable list. Then the auditor performed more detailed financial analyses to wind up with the final six.

Maywood and Richmond were the only two cities to receive a “poor” ranking in all five of the “key financial indicators” that the auditor broke out for public consumption. They appeared to have a deficient “capacity to respond to financial emergencies” and “ability to pay short-term obligations.” Their “revenue growth rate” was suspect, as was their “ability to pay retiree obligations” and “projected fiscal outlook.” 

Maywood, a neighbor of the infamously corrupt Bell in Los Angeles County, has a general fund deficit, “significant unfunded obligations,” a “weak process for financial accounting and reporting” and a “weakness in financial oversight.”

Hemet appears to be able to pay its short-term obligations but had problems with the other five categories. The Southern California high-desert town runs budget deficits and has insufficient revenues and big retiree medical costs among its problems.

Richmond, in the Bay Area, is also running budget deficits, experiencing changes in its primary revenue source, pays a lot of overtime to firefighters and police officers, and has unfunded pension liabilities.

The three less-burdened cities don’t sound all that healthy. Chico, in Northern California, exhausted its emergency fund, spent more than it earned for six years and has a bleak five-year forecast.

Ridgecrest, in Central California, also has a bleak five-year forecast, and has run a general fund deficit for three years. The city declared a financial emergency in 2012. Monrovia, in L.A. County, pays too much money in public safety overtime, has large pension cost projections and funding shortages caused by “breakdowns” in control. 

The auditor gave the lesser three a break because they “are taking steps to address the risk factors that caused us concern.” Presumably, the other three are not.

–Ken Broder

To Learn More:

State Auditor Places Six Cities on Watch List (by Jeff McDonald, San Diego Union Tribune)

Six California Cities at High Risk of Financial Trouble or Fraud (by Bob Moffitt, Capital Public Radio)

Local Government High Risk (California State Auditor)